United States Bankruptcy Appellate Panel
                                For the Eighth Circuit
                     ___________________________

                             No. 13-6013
                     ___________________________

                         In re: Robert N. Armstrong

                            lllllllllllllllllllllDebtor
                          ------------------------------

                            Bank of America, N.A

                     lllllllllllllllllllll Plaintiff - Appellee

                                         v.

                            Robert N. Armstrong

                   lllllllllllllllllllll Defendant - Appellant
                                   ____________

               Appeal from United States Bankruptcy Court
               for the Eastern District of Missouri - St. Louis
                               ____________

                          Submitted: July 17, 2013
                         Filed: September 19, 2013
                               ____________


Before FEDERMAN, Chief Judge, SHODEEN and NAIL, Bankruptcy Judges.

FEDERMAN, Chief Judge
      Debtor Robert N. Armstrong appeals from the Order of the Bankruptcy
     1
Court finding his debt to Bank of America nondischargeable under 11 U.S.C. §
523(a)(2) for fraud and § 523(a)(4) for embezzlement. For the reasons that follow,
the Judgment finding the debt nondischargeable under § 523(a)(4) is AFFIRMED.

                              FACTUAL BACKGROUND

       Debtor Robert N. Armstrong was the owner, sole member, and primary
manager of RNA Properties, LLC. In August 2001, RNA Properties acquired a
strip mall in Dallas, Texas though financing from Southwest Bank. The financing
came from two loans, one in the amount of $1.6 million, and a second in the
amount of $400,000. The first note was secured by a Deed of Trust on the mall.
As relevant here, the Deed of Trust required RNA Properties to list Southwest
Bank as the loss payee on its insurance policies. The mall was insured by Public
Service Mutual Insurance Company (“PSM”), but the policy listed Southwest as
the mortgage holder, rather than as a loss payee as was required under the loan
documents.

      On January 25, 2009, a fire destroyed one of the three structures at the mall.
PSM issued nine checks under the policy, totaling $917,149.26, made payable to
the Debtor d/b/a RNA Properties. The Debtor endorsed and deposited all of the
checks.

       At issue here are three of those insurance checks in the amounts of $80,000,
$50,000, and $5,500 – totaling $135,500 – which were made jointly payable to
“Robert Armstrong d/b/a RNA Properties LLC and Southwest Bank, An M&I
Bank, ISAOA” (the “Three Checks”). The first two checks, for $80,000 and
$50,000, respectively, were dated February 12, 2009, and were deposited into
RNA Properties LLC’s account at Bank of America on February 13, 2009. The
third check, for $5,500, was dated May 26, 2009, and was deposited into RNA

      1
         The Honorable Kathy A. Surratt-States, United States Bankruptcy Judge
for the Eastern District of Missouri.

                                         2
Properties’ account on June 1, 2009. All three checks were deposited into RNA
Properties’ account without Southwest’s endorsement, despite the fact that
Southwest was a co-payee on each of the checks.

       The Debtor used less than $5,000 of the funds from the Three Checks to
make repairs to a portion of the mall. Instead, the Debtor diverted the majority of
the funds to his personal use. Shortly after depositing the funds into the RNA
Properties account, the Debtor caused $100,000 of the money to be transferred to
his and his wife’s personal bank account. The Debtor’s wife then wrote two
checks dated February 17, 2009 from their personal account – one for $70,000 to
pay down their home equity line of credit, and a second check for $30,000 which
was deposited into their personal savings account. The Debtor admitted he used
the insurance proceeds for personal or other business issues at his sole discretion.
Indeed, despite being paid over $900,000 in total insurance proceeds, there was no
work started at the mall, except for some cleanup and $4,863.39 in minor repairs to
the adjoining building’s roof.

       Meanwhile, despite being required to do so under the loan documents, the
Debtor never informed Southwest of the fire or of any of the insurance checks.
Instead, he continued to make the regular payments on the loans to Southwest and
pay property taxes. Southwest learned of the fire sometime around August to
October 2009, from another source or from a routine inspection of the property.
On December 9, 2009, Southwest declared the notes in default and made demand
for payment of approximately $1.6 million under the two notes. The Debtor paid
Southwest $400,000 from six different personal accounts in response to the
demand, but Southwest foreclosed on the mall in February 2010. PSM sued the
Debtor, RNA Properties, and Southwest Bank in the District Court of Dallas
County, Texas. Bank of America was joined by Southwest as a third-party
defendant in relation to the Three Checks. Bank of America filed a cross-claim
against the Debtor and RNA Properties. On April 2, 2011, Bank of America and
Southwest settled Southwest’s claim for negotiating the unendorsed checks. As
part of that settlement, Bank of America paid Southwest the $135,500 represented
by the Three Checks. The Order of Dismissal of Bank of America expressly
preserved any claims by Bank of America against the Debtor and RNA Properties.


                                         3
       The Debtor filed a Chapter 7 bankruptcy case on October 28, 2011, staying
the state court litigation. Bank of America filed a proof of claim in the Debtor’s
bankruptcy case, based on the Three Checks. Bank of America also sought denial
of the discharge of the debt pursuant to § 523(a)(2)(A), (a)(4), and (a)(6) of the
Bankruptcy Code.

      On cross motions for summary judgment, the Bankruptcy Court held in
favor of Bank of America, finding that the debt was excepted from the Debtor’s
discharge under § 523(a)(2)(A) for fraud, as well as embezzlement under §
523(a)(4) of the Code. The Debtor appeals.

                                     STANDARD OF REVIEW

       We review the Bankruptcy Court’s grant of summary judgment de novo.2
Summary judgment is appropriate if the record shows that there is no genuine issue
as to any material fact and that the moving party is entitled to judgment as a matter
of law. 3 The Bankruptcy Court is not to weigh evidence and make credibility
determinations, or to attempt to determine the truth of the matter, but is, rather,
solely to determine whether there is a genuine issue of fact for trial. 4 The Court is
to view the facts in a light most favorable to the nonmoving party and to give that
party the benefit of all reasonable inferences to be drawn from that evidence. 5
“Rule 56(c) mandates the entry of summary judgment, after adequate time for
discovery and upon motion, against a party who fails to make a showing sufficient




      

. Marlar (In re Marlar), 

, 750 (B.A.P. 8th Cir.
2000) (citations omitted).
      3
       Id. (citations omitted); Fed. R. Civ. P. 56(c), made applicable here by Fed.
R. Bankr. P. 7056.
      4
          Id. (citations omitted).
      5
          Id. (citations omitted).

                                           4
to establish the existence of an element essential to that party’s case, and on which
that party will bear the burden of proof at trial.”6

      Because we conclude that the Bankruptcy Court did not err in finding the
debt to be nondischargeable under § 523(a)(4) for embezzlement, we limit our
analysis to that basis for nondischargeability. As a result, we do not reach the §
523(a)(2)(A) fraud issue.

                                        DISCUSSION

      Section 523(a)(4) of the Bankruptcy Code provides that a discharge under §
727 “does not discharge an individual debtor from any debt . . . for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 7
“Embezzlement, for purposes of section 523(a)(4), is the fraudulent appropriation
of property of another by a person to whom such property has been entrusted or
into whose hands it has lawfully come.” 8 “A plaintiff must establish that the
debtor was not lawfully entitled to use the funds for the purposes for which they
were in fact used.”9

      “To show embezzlement, the creditor has to prove that it entrusted its
property to the debtor, the debtor appropriated the property for a use other than that
for which it was entrusted, and the circumstances indicate fraud.”10 Courts often
examine whether the terms by which a debtor came into possession of the funds

      6
        Id. (quoting Celotex Corp. v. Catrett, 

, 322, 

,
2552, 

 (1986)).
      7
           11 U.S.C. § 523(a)(4).
      8
       In re Phillips, 

, 304 (8th Cir. 1989) (quoting In re Belfry, 

, 662 (8th Cir.1988)) (internal brackets and quotation marks omitted).
      9
           In re Belfry, 

, 662 (8th Cir. 1988).
      10
       Hamilton v. Green (In re Green), 

 at *4 (Bankr. W.D.
Mo. 2012) (slip copy) (citation omitted).

                                            5
create an obligation on the debtor.11 “Obligations sufficient to support a claim of
embezzlement are ones which make the debtor’s discretionary use of the payment,
prior to complying with the obligations, improper.”12

      First, the Debtor asserts that the Bankruptcy Court erred in finding that Bank
of America proved standing to pursue a claim under § 523(a)(4) because Bank of
America did not plead or prove that the Debtor embezzled funds from it, as
opposed to Southwest Bank. Rather, the Debtor asserts, his debt to Bank of
America is based on breach of the presentment warranty under § 3.417 of the
Uniform Commercial Code and the Texas UCC (for depositing the checks without
Southwest Bank’s endorsement), not embezzlement. He further asserts that Bank
of America could not pursue this cause of action on behalf of Southwest Bank
because there were no contractual subrogation rights between the two banks.

      To the contrary, however, the Debtor expressly stipulated that Bank of
America was subrogated to Southwest’s claims against him. 13 Since Bank of
America is subrogated to Southwest, and stands in the shoes of Southwest,14 this
cause of action for embezzlement is not based on a breach of the presentment
warranty to Bank of America; rather, it is based on the Debtor’s use of funds in
which Southwest Bank claimed an interest. Bank of America does, therefore, have
standing to pursue the embezzlement claim.

     Next, pointing out that “[o]ne cannot embezzle one’s own property,”15 the
Debtor asserts that the Court erred when it found he had no ownership interest in
      11
           In re Belfry, 862 F.2d at 663.
      12
           Id. (citation omitted).
      13
        See, e.g., Stipulation of Certain Undisputed Facts Between Bank of
America, N.A. and Robert N. Armstrong at ¶¶ 30 and 48, Adversary No. 12-4045
(Bankr. E.D. Mo. Jan. 10, 2013), ECF No. 41.
      14
        The term “subrogate” means “[t]o substitute (a person) for another
regarding a legal right or claim.” Black’s Law Dictionary (9th ed. 2009).
      15
           In re Belfry, 862 F.2d at 662.
                                            6
the insurance proceeds and that he had, therefore, fraudulently appropriated the
funds of another. Further, the Debtor asserts, a borrower cannot embezzle funds
which are proceeds of a creditor’s collateral, because the borrower retains an
ownership interest in the collateral subject to the creditor’s security interest.16 The
Debtor asserts that he owned the mall property, and thus the insurance proceeds,
which were merely pledged as collateral for the loan by Southwest Bank.

      The Bankruptcy Court held that Southwest Bank was the owner of the
insurance proceeds because (i) the Deed of Trust specifically stated that Southwest
Bank was to be the loss payee of any insurance policy concerning the mall; (ii)
RNA Properties, “by way of Debtor,” was required to immediately inform
Southwest Bank of any insurance claim; (iii) the Deed of Trust called for all
insurance proceeds to be paid directly to Southwest Bank rather than to Southwest
Bank and RNA Properties jointly; (iv) the Deed of Trust stated that Southwest
Bank had the power to endorse any check that was jointly payable to Debtor and
Southwest Bank; and, “most importantly,” (v) the Deed of Trust stated that,
“[Southwest] Bank shall have the right, as its sole option, to apply all such monies
as shall be thus collected and received [from insurance proceeds]... toward the
payment of the Secured Indebtedness of the cost of rebuilding or restoring the
damaged property ... or to apply all or any part of such monies against any part of
the Secured Indebtedness, without regard to the maturity thereof, and in any order
as Bank shall elect.”

      Based on this language in the Deed of Trust, the Bankruptcy Court held that
neither the Debtor nor RNA Properties had any ownership interest in the insurance
proceeds, particularly the Three Checks. Rather, the Court held, Southwest Bank
held more than a mere security interest in the proceeds – it owned them.

      In so holding, the Bankruptcy Court acknowledged, but distinguished, the
contrary conclusion reached by the Eighth Circuit in In re Phillips.17 In that case,
the debtors were officers and shareholders of Midwest Poultry Equipment, Inc.


      16
           See In re Phillips, 882 F.2d at 304.
      17
           

 (8th Cir. 1989).

                                            7
Midwest granted First National Bank of Fayetteville (FNB) a security interest in
proceeds owed to the company under a lease. Although Midwest had instructed
the funding bank to make the check for the lease payable jointly to Midwest and
FNB, the bank made the check payable only to Midwest. Midwest deposited the
check directly into its general funding account. After the debtors (who were
Midwest’s officers and directors), learned of the mistake, they did nothing to
correct the problem and did not notify FNB of it. When the debtors filed
bankruptcy, FNB alleged that the debtors had embezzled the funds. Notably,
although some of the funds were used to pay corporate debts which the officers
(debtors) had guaranteed, the debtors did not themselves walk off with the funds;
instead, they kept the funds for their corporation without paying them over to the
bank. The Eighth Circuit held that, despite certain “assignment” language in the
loan documents, Midwest owned the funds subject only to FNB’s security interest.

       Crucially, what no one has fully appreciated in our case thus far is the
distinction between the Debtor and RNA Properties LLC as separate entities. The
Eighth Circuit did not acknowledge the distinction in Phillips, either, apparently
because it had concluded that FNB, as the holder of a security interest, had no
ownership interest in the money to the exclusion of the owner/borrower (Midwest),
under the loan documents there.

       Here, regardless of whether RNA Properties had an ownership interest in the
insurance proceeds to the exclusion of Southwest (as was the case in Phillips),
there is nothing in the record at all suggesting that the Debtor had any ownership
interest in mall property or the insurance proceeds. 18 The Debtor’s repeated
unsupported statements in pleadings that he owned the property are perplexing.




      18
         For instance, the Deed of Trust identifies the “Borrower” as “RNA
Properties LLC A/K/A RNA Properties, L.L.C.” and warrants that “Borrower is
lawfully seized of indefeasible title and estate to the Mortgaged Property. . . .” The
Debtor signed the Deed of Trust on behalf of RNA Properties, but he is not a party
to it.

                                          8
       We held in In re Potts that there could be “no doubt” that a contractual co-
payee of a check has an interest in the funds represented by the check.19 Similarly
here, there can be no doubt that, under the terms of the Deed of Trust and as co-
payee of the Three Checks, Southwest had an interest in the funds represented by
the Three Checks. Consequently, since the Debtor had no ownership interest in the
insurance proceeds, he either took money which was owned outright by Southwest
(as the Bankruptcy Court held), or he took money that was owned by RNA
Properties, subject to a lien in favor of Southwest Bank. Either way, in contrast to
Phillips – where the debtors themselves were not alleged to have taken the money
– the Debtor here did misappropriate “property of another.”

       The gloss over the distinction between the Debtor and RNA Properties is
also relevant on the question of whether the Debtor initially came into possession
of the funds lawfully, one of the elements of embezzlement. As stated, the Three
Checks were made payable to Robert Armstrong d/b/a RNA Properties and
Southwest Bank.20 This is likely because, for some reason, the insurance policy
itself appears to have been issued to Robert Armstrong d/b/a RNA Properties
LLC, 21 even though the Debtor had no ownership interest in the mall property.


      19
         

, 313 (B.A.P. 8th Cir. 2012). See also Option One Mortgage
Corp. v. Fitzgerald, 

, 525 (M.D. Pa. 2009) (holding that, where
the plaintiff was a named co-payee on a check, and the mortgage agreement
provided that the defendants were obligated to turn the check over to the plaintiff,
the plaintiff’s right in an insurance check vested at the time it was issued, and the
defendants had no rights in the check without plaintiff’s endorsement).
      20
       Similarly, all of the other insurance checks were made payable to Robert
Armstrong d/b/a RNA Properties LLC.
      21
         See Affidavit of Jeffrey T. Bannon in Support of Public Service Mutual
Insurance Company’s Application for Temporary Restraining Order and
Temporary Injunction at ¶ 2, attached as Exhibit A to Affidavit of Rupert Baron,
Adversary No. 12-4045 (Bankr. E.D. Mo. Nov. 21, 2012), ECF No. 27-4; and
Exhibit B to Defendant’s Reply to Bank of America’s Response to Motion for
Summary Judgment, Adversary No. 12-4045 (Bankr. E.D. Mo. Nov. 27, 2012)
ECF No. 31.

                                          9
Because the Debtor had no ownership interest in the mall property, neither the
insurance policy nor any of the checks from it should have been issued to the
Debtor. Nevertheless, because the checks were issued to the Debtor, we conclude
that he came into possession of the funds lawfully. But even if that were not the
case, the only difference between a nondischargeable debt for embezzlement and a
nondischargeable debt for larceny under § 523(a)(4) is whether the initial
possession of the property was lawful. 22 While we conclude that the Debtor’s
initial possession of the Three Checks was lawful, if it was not, his taking of the
money was larceny. Either way, the debt is nondischargeable under § 523(a)(4).

      The Debtor next asserts that the Bankruptcy Court erred in finding
fraudulent intent. While the Bankruptcy Court’s findings on this element of §
523(a)(4) were scant, the undisputed facts amply support a finding of intent.

      A debtor’s fraudulent intent for purposes of § 523(a)(4) may be, and often
must be, shown by circumstantial evidence. 23 Here, the undisputed and
indisputable facts include the following circumstantial evidence of the Debtor’s
fraudulent intent: (i) the Debtor failed to disclose the fire to Southwest, despite the
obvious requirement in the loan documents that he do so; (ii) the Debtor failed to
disclose to Southwest that he had made an insurance claim or that he had received
over $900,000 in insurance proceeds, despite the requirement in the loan
documents that he do so, and despite the fact that the loan documents required
payment of any insurance proceeds be made to Southwest Bank to be applied at its
sole discretion; (iii) the Debtor deposited the checks without Southwest’s
endorsement or approval, despite the fact that the loan documents required
      22
        Treadwell v. Glenstone Lodge, Inc. (In re Treadwell), 

, 406
(Bankr. W.D. Mo. 2011) (quoting 4 Collier on Bankruptcy ¶ 523.10[2] (15th ed.
Rev.) (“In short, section 523(a)(4) excepts from discharge debts resulting from the
fraudulent appropriation of another’s property, whether the appropriation was
unlawful at the outset, and therefore a larceny, or whether the appropriation took
place unlawfully after the property was entrusted to the debtor’s care, and therefore
was an embezzlement.”).
      23
           See Kruse v. Murray (In re Murray), 

, 275 (Bankr. W.D. Mo.
2009).

                                          10
Southwest’s approval, Southwest’s endorsement was clearly required on the
checks as they were made jointly payable, and despite the fact that the deposit
without the endorsement was in contravention of Texas law; (iv) the Debtor
immediately diverted the money from RNA Properties’ bank account and used the
money for personal and other business purposes at his sole discretion, despite the
fact that the loan documents authorized only Southwest Bank to apply the proceeds
at its own discretion; and (v) RNA Properties, which was controlled by the Debtor,
made almost no repairs to mall.

       We recognize that fraudulent intent is ordinarily a question to be determined
by the fact-finder and is difficult to demonstrate on a motion for summary
judgment.24 However, when the “unmistakable picture painted by . . . stipulation”
establishes fraudulent intent, summary judgment is appropriate.25

         Based on the foregoing undisputed circumstantial evidence, Bank of
America met its initial burden of showing no genuine issue of material fact that the
Debtor took the money with fraudulent intent. That being the case, the Debtor was
required to “advance specific facts to create a genuine issue of material fact for
trial.” 26 While the Debtor generally asserted in responses to discovery and in
pleadings that he was not aware of any of loan documents’ requirements to notify
Southwest of anything, or of his obligation to obtain Southwest’s endorsement on

      24
        See Jackson v. Star Sprinkler Corp. of Florida, 

, 1231 (8th
Cir. 1978). See also Thoms v. Vucurevich (In re Vucurevich), 

(Bankr. D. S.D. Feb. 25, 2013) (“Where motive and intent are at issue, disposition
of the matter by summary judgment may be more difficult.”).
      25
          Id. at 1234 (finding that the stipulated facts in that case left no material
issue of fact remaining and that those facts established as a matter of law that the
transfer at issue was made with intent to hinder, delay, and defraud creditors).
      26
         F.D.I.C. v. Bell, 

, 263 (8th Cir. 1997) (“Mere arguments or
allegations are insufficient to defeat a properly supported motion for summary
judgment; a ‘nonmovant must present more than a scintilla of evidence and must
advance specific facts to create a genuine issue of material fact for trial.”) (citation
omitted).

                                           11
checks which were made payable to Southwest, and that he had done so in the past,
he pointed to no “specific facts” to support those claims. 27 Moreover, that
assertion in light of the facts defies common sense.

       In sum, the in order to prevail under § 523(a)(4), “[a] plaintiff must establish
that the debtor was not lawfully entitled to use the funds for the purposes for which
they were in fact used.”28 Southwest Bank established that the Debtor was not
lawfully entitled to use the insurance proceeds for the purposes for which he used
them and the Debtor has produced nothing to the contrary.

       ACCORDINGLY, the Order of the Bankruptcy Court finding the Debtor’s
debt to Bank of America, as subrogee to Southwest Bank, to be nondischargeable
under 11 U.S.C. § 523(a)(4) is AFFIRMED.
                              ________________________




      27
         The Debtor’s attempt to offer evidence of specific instances of consistent
conduct in the past for the first time on appeal is not appropriate. McCleary v.
ReliaStar Life Ins. Co., 

, 1120 (8th Cir. 2012) (“Our review of the
evidence includes only the record that was before the [Bankruptcy Court] when it
ruled on the summary judgment motion.”).
      28
           In re Belfry, 862 F.2d at 662.

                                            12